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Purpose on Payday

By Andrew Adie
30 July 2021
Green & Good (ESG and Impact)

By Andrew Adie

July was a month of extreme weather: From regional flooding in Northern Europe, flash floods in parts of the UK, extreme heat in the US to landslides in India. Lives lost, businesses and homes destroyed and widespread concern about what this tells us about our future.

Analysis from the Royal Meteorological Society showed that in 2020 the UK alone experienced one of the wettest, warmest and sunniest years on record – hitting milestones across three areas that scientists say show the impact of climate change.

Another shocking report from a group of scientists, published in Nature, showed that the Amazon rainforest has started to emit more carbon than it absorbs (due to deforestation, farming and burning), potentially accelerating climate change by removing one of the planet’s great ‘carbon sinks’.

In the same month we have seen billionaires Jeff Bezos and Sir Richard Branson travelling to space, with Jeff Bezos saying the trip showed him “how fragile” the earth is. While some have criticized the trips, others have called for more funding for technological solutions to extract carbon from the atmosphere in a renewed debate between the climate change prophets and the ‘wizards’ (who believe technology will save us).

What hasn’t been open to debate is the continued focus on green washing and concerns from activists, NGOs and governments about corporates over-claiming their success in decarbonizing their operations. Mark Carney’s Taskforce on Scaling Voluntary Carbon Markets has announced it will unveil plans by the end of this year for an independent governance body to oversee the scaling up of carbon offsetting schemes globally.

All this comes as we inch closer to the UN COP26 conference with less than 100 days now to go before the doors are due to open at Glasgow’s SEC on 1st November, 2021.

The UK has published its Presidency Programme for COP26 and the mood music to have firmer commitments agreed for 2030 is growing. What is achieved remains to be seen but a lot will hang off COP26 being a success.

In other developments, activist investors are continuing to agitate for change in a number of listed UK companies, seeking to extract value and drive better returns for shareholders.

While there is much discussion about the undervaluing of UK listed companies, ESG continues to play a key role in the outcome of these boardroom battles. On one hand it provides a range of levers that activists and investors can pull to put pressure on boards to change strategy or capitulate to their demands. On the other hand it leaves open the question of how boards should act if they secure funds from the sale of assets or improved performance.

While investors are focused on ESG as a measure for how prepared corporates are for the financial and operational challenges of a world affected by climate change, whether they are willing to accept a smaller proportion of profits and proceeds flowing back to their pockets with a larger proportion diverted to plug pension scheme deficits, reduce prices or invest into climate smart investment remains an open question.

The lead-up to COP26 was always going to focus heavily on sustainability and carbon reduction.

July’s extreme weather is refocusing minds on why this matters and the changes that we all need to accept in our personal and work lives if we are to achieve our net zero goals.